How TDS Works: Tax Deducted at Source by Section
TDS rates differ by payment type and section. Here's how Tax Deducted at Source works and how to find the net amount payable.
What is TDS?
Tax Deducted at Source (TDS) means the payer withholds a percentage of certain payments and deposits it with the government on the recipient's behalf. The recipient later claims it against their total tax liability.
Rates depend on the section
Each payment type falls under a different section of the Income Tax Act, each with its own rate and threshold — for example, professional fees, contractor payments, rent, and commission are all treated differently. The TDS Calculator lets you pick the section so the correct rate applies.
The calculation
It's straightforward once you have the rate:
- TDS = gross amount × section rate
- Net payment = gross amount − TDS
For instance, on professional fees of ₹1,00,000 at 10%, you deduct ₹10,000 and pay the vendor ₹90,000.
Why getting the section right matters
Deduct too little and you risk interest and disallowance; deduct too much and you tie up the vendor's cash until they claim a refund. Selecting the right section avoids both.
How to use it
- Choose the relevant TDS section.
- Enter the gross amount.
- The tool shows the TDS to deduct and the net payable.